Saving for Retirement? Make a Zero-Based Budget

What Is a Zero-Based Budget?

Typically, “zero” is a word you don’t want to hear when it comes to your money. But in this type of budget plan, the big 0 is the goal. A zero-based budget is a monthly saving and spending plan in which you give every single dollar of your income a job to do. In short, some of your income will go toward expenses, some toward savings, and even some toward investments if you have them. If your budget is balanced, you will have zero dollars left over.

For example, if you earn $2,500 in income each month, then your monthly expenses, savings, investments and charity donations should add up to exactly $2,500. When you assign every single dollar a purpose, no money goes into or out of your bank account without a plan — or without your knowledge!

How to Make a Zero-Based Budget

Step 1: Calculate Your Monthly Income

Grab a notebook, or if you’re tech-savvy, you can use an Excel spreadsheet or even a budgeting app like EveryDollar. It’s free and designed specifically for zero-based budgeting.

Then, calculate all of your monthly income, including paychecks, side hustles, Social Security checks, residual income — anything and everything that enters your bank account in a month.

Step 2: Write Down Your Monthly Expenses Before the Month Starts

At the beginning of each month, write down all of your planned spending, starting with the four most important costs: housing, food, utilities and transportation. These are the highest priorities for each month. After you’ve written down the costs of your basic needs, there are a few more steps to filling out your budget:

  • Write down the costs of everything else — cell phone and/or landline, cable plan, monthly club dues, credit card or loan payments, etc. Your needs will change from month to month, which is why it’s crucial to write a new budget at the beginning of every month.
  • Unexpected costs will always come up. Your faucet breaks, or your friend welcomes a new grandchild and you want to buy them a gift. For that reason, you should include a miscellaneous category in your budget. Estimate a comfortable amount for miscellaneous surprise costs. If your estimated miscellaneous costs are too little or too much at first, that’s OK. It can take a few months of budgeting to get this category right. Just remember, your miscellaneous money is not for splurging on shiny new toys or a trip to the outlet mall — only for unexpected expenses.
  • Last but not least, write down how much you plan to save. If you don’t have much left over for savings at this point in your plan, it’s time to revisit the other sections of your budget and see where you can cut costs. You may save more by ending your cable subscription or cutting back on eating out. If you have a financial goal you’re trying to meet, savings should be your priority. You can always get your cable back after you’ve accomplished your goal.
  • If you’d like, you can also include a category for monthly charity. If you’re really scrounging to save or pay off debt, check out these tips for inexpensive ways to give back.

Step 3: Write Down Your Yearly Expenses

Don’t let seasonal costs sneak up on you. Think through the entire year and plan ahead for events like birthdays, anniversaries, yearly vacations or buying gifts for the holidays. You can also account for yearly expenses like car tag renewals, HOA dues, insurance premiums and taxes. Putting aside a little each month can make paying for annual costs less stressful when they come up.

For example, maybe you want to spend $1,000 on a vacation this summer. Simply divide 1000 by how many months are left until the departure date. That’s how much you’ll need to save each month for your yearly getaway, so make sure to add it to your monthly plan.

Step 4: Subtract Your Income from Your Expenses

Once you’ve finished creating your monthly budget, add up all the expenses. Then, subtract them from your income. If you successfully created a zero-based budget, the result will be zero. If not, revisit the items in your budget. See where you can cut unnecessary costs or push yourself to save a little more.

Once your income minus your expenses equals zero, you’re ready to put your budget into action.

Step 5: Record All of Your Spending and Income Throughout the Month

After you’ve written your budget, don’t just set it aside. You’ll need to refer to your budget all month long.

For a zero-based budget to work, it’s important to track all of your transactions. Even if you spend just a few bucks at the dollar store, write it down in your budget. Subtract the number from the appropriate spending category to keep tabs on how you’re doing. Make sure it lines up with your monthly bank account statements, too.

It may sound tedious, but writing everything down is one of the best ways you can successfully tally your spending and savings and help ensure that you’re on track throughout the month. This is where a budgeting app or Excel spreadsheet can help.

Step 6: Start Over

At the end of each month, it’s time to start next month’s budget. This is the perfect time to look back on your successes and shortcomings for the month prior and make adjustments to your plan. Was there anywhere you could have spent less? Is there somewhere you need to spend more to feel more comfortable?

It will probably take a few months to get the hang of your new financial plan. You may go under or over your estimated amounts, and that’s okay at first. Once you’ve practiced a few times, you’ll be better able to estimate your needs.

If you spent less than you budgeted for, that’s great! Put that little bit of extra cash toward your goals, whether that’s your retirement, moving into a senior living community, boosting your savings account or paying off debt. 



Whatever you do, don’t give up! Your hard work will pay off in the end.

Are You Saving for Senior Living or Retirement? 

If you’re looking for tips on how to pay for senior living, check out our blog post, “The 5 Best-Kept Secrets to Financing Senior Living.”

The above content is shared for educational and informational purposes only. The content is not intended to be a substitute for professional or financial advice and should not be relied upon for making financial or other decisions. Please consult your attorney or financial advisor before acting on any content on this website.

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